Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. If you continue browsing the site, you agree to the use of cookies on this website. See our User Agreement and Privacy Policy.

Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. If you continue browsing the site, you agree to the use of cookies on this website. See our Privacy Policy and User Agreement for details.

Strategic Digital Transformation in Soccer

1.
Strategic Digital
Transformation in Soccer
Understanding industry’s business
and history to shape its digital future
Francisco Hernández-Marcos
Cambridge (MA)
March 24th, 2015
This document has been produced by 11 Goals & Associates. It is not complete unless
supported by the underlying detailed analyses and oral presentation.

3.
22
Views are our own. All information and
insights contained in this presentation are
either public or common knowledge
Disclaimer

4.
Agenda
 Soccer as a business
 Is the current model exhausted?
 Key Qs for Digital Transformation

5.
44
About Soccer
Source: Wikipedia; FanPageList; UEFA; Reuters; IBT
 First played in England in 1863, Soccer had had its roots in
several ball games played in different parts of Europe for
centuries.
 World’s most popular sport: 250 mill. players in 200
countries.
 FIFA has more member countries than the United Nations.
 Some players are among the most respected celebrities in
their countries, and Worldwide.
‐ Didier Drogba is credited with brokering a Cease-Fire in
Ivory Coast that ended a 5-year civil war.
‐ Cristiano Ronaldo is the most followed person in Social
Media (141 mill. in FB+TW).
 Global TV audience (mill. people):
‐ European Champions League final: 380
‐ “El Clásico” (Real Madrid-Barcelona): 200~400
‐ Super Bowl: 160

6.
55
Soccer lifts the spirit…
Source: Soccernomics
World Cup -> Less suicides not only
in June, but for the whole year
…and saves lives!

10.
99
Some research shows that league position is strongly
correlated (R2=89%) with wage expenditure
Source: Soccernomics
BACK-UP
…but same research tells us that correlation with transfer spending is low (R2=16%)
Are wealthier clubs profiting
from the non-existence of
superior options for over-
performing players?

15.
1414
Soccer big-ticket sponsorships
Shirt
Source: Forbes; The Economist; other
Note: Stadium ranking is not exhaustive
BACK-UP
80
45
40
39
31
Manchester United
(Chevrolet)
FC Barcelona
(Qatar Airways)
Bayern Munich
(Deutsche Telekom)
Real Madrid
(Fly Emirates)
Liverpool
(Standard Chartered)
Kit
41
39
38
38
37 88
Real Madrid
(Adidas)
Liverpool
(Warrior)
FC Barcelona
(Nike)
Bayern Munich
(Adidas)
Manchester United
(Nike)
Signed
Adidas for
USD 88
mill. for 13
seasons
beginning
15/16
•Manchester United -and other English teams- are pushing hard by signing very profitable big-ticket contracts. The reason behind
why they sell at higher price might be that the English Premier League has more TV eyeballs.
•We may infer that RM, FCB and BM must be very good at the rest of the Comercial revenue drivers: long-tail contracts, loyalty
cards, summer tournaments, etc. or that part of the revenues of the players are invoiced through the club.
•Stadium’s naming rights deals are a great potential source of new revenues in the future. However clubs are reluctant to hear
offers that are not large and long enough (Real Option framework).
Yokohama just
signed with
Chelsea for USD
61 mill.
beginning
15/16
Stadium
8,8
5,5
Emirates
(Arsenal)
Etihad
(ManCity)
EPIC
(Real Madrid)
Allianz
(Bayern Munich)
Veltins
(Shalke 04)
USD mill./year
Real Madrid
signed pre-
deal with IPIC
(terms not
disclosed)
Joint deal
with Shirt
?
?
?

16.
1515
Stadium Naming Rights in the USA as of 2013
Source: New York Times
BACK-UP
•75% of US clubs have sold stadium naming rights.
•Business much more developed than in Europe. Perhaps because sponsors have developed a better ROI framework.
•Best deals in recent years.
•European Soccer teams can and should be able to reach similar deals for their global audience.
Interactive chart (NYT)

18.
1717
Cost drivers
Source: own analysis based on Annual Statements (2013/14); UEFA (2012)
ILLUSTRATIVE
EXAMPLES
Ratios to revenue
44% 48%
74% 69% 69% 69% 61%
51%
65%
17% 12%
Real
Madrid
FC
Barcelona
Average
Turkey
Average
Italy
Average
England
Average
Russia
Average
Spain
Average
Germany
Average
UEFA
Other
Amortization
Wages
•Team wages account for the most part of an average club costs
•There are significant differences in cost management among clubs (e.g. wage steps)
•57% of UEFA member clubs are loss-making
•Cost is the main driver of a Club’s profitability. Most Clubs are loss-making because
they are not enough diligent on the cost base
•UEFA is concern about these issues and is implementing “Financial Fair Game” policies
0%-8%-11% 2% -8%
Net profit to revenue ratio
EBITDA:
164 M.€
EBITDA:
134 M.€
-9%-22%

22.
2121
Soccer business models
• Large, well-established teams with a long track record on
the pitch and a large fanbase all over the world.
• Revenues, large and stable, finance the team.
• Key to profitability is being able to restrain the payroll cost
of the players.
• Usually have successful junior academies, but it is difficult
for a player to walk all the steps onto the first team.
Description
• Real Madrid
• Manchester United
• Bayern Munich
• FC Barcelona
• Manchester City
• Paris Saint-Germain
• Chelsea
Examples
• Mid-sized teams with strong junior academies or a key
long-term investor, working to build a Commercial stream
and an international brand.
• Transfer fees come not only from the junior academy, but
from trading players who become stars in 2-3 years.
• From time to time succeed in Europe and get significant
revenues. Money buys time to build-up Commercial.
• Revenues are volatile and cash must be watched.
• Atlético de Madrid
• Shalke 04
• Valencia CF
• Fiorentina
• Ajax
• Monaco
• Small local teams with little chances to build-up a
Comercial revenue stream.
• Best source of revenue are transfer fees from players
coming from their junior school.
• Teams that do not succeed in developing talent are usually
money-losing clubs.
• Real Sociedad
• Villareal CF
• Elche CF
• Stade Rennais
• Atalanta B.C.
• FC Sochaux-Montbéliard
• Many Latam clubs
Factory of
players
“Lucky striker”
(prizes, trades, or
key investor)
Commercial
funds team
(wages & capex)
• Very small and small clubs that live almost exclusively on
tickets. Adapt budget to revenues (Cash In=Cash Out).
• Usually no formal business plan
Survival mode
Top ~1%
Next ~5%
Next ~20%
Source: 11 Goals & Associates; UEFA (2012)
Most clubs

23.
Organizational development of soccer clubs
22
Sport Stadium Commercial
• Late 19th and early 20th • Late 1940s • 1990s
Years
• English teams • Real Madrid • Manchester United
Pioneer(s)
• Spain’s La Liga1 • Arsenal • Real Madrid
Current leader(s)
•Every time a soccer club adds a new organizational structure there is some degree of
conflict, specially with the previously dominant one.
•Leadership (new organization) usually comes from the club’s chairperson (examples:
Santiago Bernabéu with Real Madrid stadium, Florentino Pérez with commercial department
at Real Madrid, etc.).
•Broadcast is irrelevant in terms of organization. It’s a contract with few people managing it.
1 IFFHS

29.
2828
EUR -> GBP exchange rate
Source: Google Finance
GPB depreciated significantly against EUR in 2007-9
BACK-UP
•Currency distortion around 2008 for
British teams, especially in regard to
local income such as Matchday or
domestic Broadcast rights

30.
2929
Soccer in McKinsey’s Digital Transformation curve
Source: McKinsey&Co (framework); 11 Goals & Associates
•Soccer’s industry is at a point where digital
innovations could be done, but not close to
the tipping point, thanks to commercial
strength and growth
•However a club could trigger and accelerate
an industry digital transformation, specially if
new revenues are generated (impact on sport
performance)
•Digital newcomers are unlike to appear due to
the sports’ nature and historical leverage, but
some incumbents are very committed to
their digital operations (e.g. ManCity)
CONCEPTUAL

31.
3030
Wrapping-up
¶Although Commercial revenue seems to have a bright future
ahead, and the industry is resilient to non-digitalization, a
digital first-mover could enjoy extra revenues to continue
investing on the team and ensuring its success.
¶A successful first-mover could trigger and accelerate the digital
transformation of the industry.
¶Is it possible to significantly create value from digital without a
strong Comercial Business Model? What’s the difference
between using digital for “business as usual” and creating a
digitally-based business model?

32.
Agenda
 Soccer as a Business
 Is the current model exhausted?
 Key Qs for Digital Transformation

33.
3232
#1 What kind of Digital Transformation?
• Same Business Model, different processes
• Incremental innovation
• Seeking efficiency, but not always
• Low risk, medium return
• Suboptimal strategy, but creates value
• Ex.: Most large commercial banks such as BBVA or Grupo
Santander
Performance DT
Strategic DT
Soccer clubs have much more to win from Strategic DT ,
but only if conditions for a good execution are set, specially
Chairperson/Board leadership and commitment
• New Business Model
• Disruptive innovation, but it does not have to affect the core
business if execution plan is well shaped
• Seeking revenue growth
• High risk, high return
• Optimal strategy, but not easy to execute
• Ex.: Netflix, Coursera (~Stanford), edX (MIT, Harvard)

34.
3333
Strategic DT on the innovation curve(s)
PerformanceDT
#1BACK-UP
StrategicDT
• Strategic DT requires to invest
time and cash in developing a
Business model before it becomes
a better alternative.
• The Chairman and the CDO (Chief
Digital Officer) should negotiate
and agree what investment and
time seems reasonable before
beginning to see business returns.
• E.g.: It took Dick Fosbury 5 years
to refine his high jump style until it
showed better results that the
incumbent style.
Same BM
BM 1
BM 2

39.
“Marketing is dead”
Harvard Business Review – 9 Aug 2012
Source: http://blogs.hbr.org/cs/2012/08/marketing_is_dead.html
Traditional marketing — including advertising, public relations, branding and
corporate communications — is dead. Many people in traditional marketing roles
and organizations may not realize they're operating within a dead paradigm. But
they are. The evidence is clear.
Buyers are checking out product and service information in their own way, often
through the Internet, and often from sources outside the firm such as word-of-
mouth or customer reviews.
Actually, we already know in great detail what the new model of marketing will look
like. It's already in place in a number of organizations. Here are its critical pieces:
 Restore community marketing
 Find your customer influencers
 Help them build social capital
 Get your customer advocates involved in the solution you provide.
Most read article in Aug 2012
From Brand to Fan
BACK-UP
#3

42.
4141
Frameworks to design a great community strategy
Football fans
Team Supporters
General public
“Pools” “Web” “Hub”
Web 2.0 and Community Marketing (SlideShare)
Fan segmentation Type of Affiliation Gamification
#3
Role in Ecosystem
Copy
Ignore
Minimum presence
Combat
Complement

44.
4343
Organizational implementation of DT
#4
Chairperson
CEO
BU
Sport
BU
Operations
BU
Commercial
Board
Staff dep.
Digital
Short-Term
•First, a small Digital unit is created to
begin understanding the club dynamics,
creating links to other departments,
and proposing a Digital Strategy.
•Unit depends on the Chairperson, to
protect it from “business as usual”,
specially when CEO comes from a
strong BU.
•Priorities: Strategy and Organizational
changes
•Once the club buys the Digital Strategy,
the units grows until create a BU and
have a seat in the steering committee.
•Still depending from the Chairperson
who provides motivation and
leadership, and who helps coordinating
with other BUs while readapting
internally the BM.
•Priorities: Executing strategy,
implementing changes.
•When new BM is implemented, BU
processes are well established, and an
attribution model is in place (see
forthcoming chart), the BU changes
dependency, to depend from the CEO.
•Under the new model, CEO sets goals
and demands performance to the unit.
•Priorities: Revenues, direct or indirect
according to what the attribution model
measures.
Chairperson
CEO
Medium-Term
Chairperson
CEO
BU
Commercial
Long-Term
BU
Digital
… …
A) Strategic DT; large club
ILLUSTRATIVE
EXAMPLE
BU
Commercial
BU
Digital

45.
4444
•Alternatively we might create a Digital Projects Office and focus on each BU’s performance.
•Advantages:
‐ Less “turf battles” with BUs over what is digital or not.
‐ BUs do not have to worry about building up digital competences.
‐ Digital gets some “quick wins” that allow it to consolidate within the organization and win the respect of BUs.
‐ Chairperson does not have to play an active role.
•Disadvantages:
‐ The Digital Projects Office is not a true leadership office. Projects optimize each BU goals, but not the global organization.
‐ Continuity between the Digital Projects Office and the BU Digital is hard due to the different nature of the structures and its
people. It’s harder to change we something is grown-up.
Chairperson
CEO
BU
Commercial
Short-Term
Digital Projects
Office
#4
B) Performance DT; large/mid-sized club
Organizational implementation of DT ILLUSTRATIVE
EXAMPLE
Chairperson
CEO
BU
Sport
BU
Operations
BU
Commercial
Board
Staff dep.
Long-Term (if shifts to Strategic DT)
BU
Digital
BU
Sport
BU
Operations
Board
Staff dep.

46.
4545
Chairperson
CEO
BU
Sport
BU Commercial +
Operations+ Digital
Board
Staff dep.
Short-Term
•For small and medium-sized clubs where stadium and commercial is managed within the same department, there is the
opportunity to integrate all those activities with digital into a team with goals aligned and high aspirations.
•Small teams do not need to “overcomplicate” the fit of Digital into the organization.
•The fitness of this model depends not so much in the size of the club, but on the dynamics of the organization, although there is
some correlation.
Chairperson
CEO
BU
Sport
BU
Operations
BU
Commercial
Board
Staff dep.
Long-Term (if significant organizational growth)
BU
Digital
#4
C) Strategic + Performance DT; mid-sized/small club
Organizational implementation of DT ILLUSTRATIVE
EXAMPLE
“It’s good to
be young”

48.
4747
#6 What’s the right digital culture?
ILLUSTRATIVE
¶ The actual culture to implement depends on the strategic goals and specially on
the organizational chart we are implementing.
¶ In general each Club BU has its own culture. At least, BU Sport’s is different from
Stadium's or Commercial’s. Culture is “fragmented”.
¶ So we would suggest to engine a specific culture for BU Digital, based on the
following premises:
‐Flat, decentralized power.
‐Expert authority (instead of managerial authority)
‐Promote some “cultural tension” (not conflict) with the rest of the organization.
‐Openness, informality, individual initiative, express real feelings in a safe
environment, tolerance to failure, etc.
‐Passion for testing and analytical research.
‐Constant search of fresh air: interaction with universities, rotation of
professionals, workshops, out-of-office training, etc.
¶ But please, do not think this a high-tech start-up.

49.
#7 What to offer Free, Cheap, or Premium
FREEMIUM = FREE + PREMIUM
“Attract audience with free versions of the product, introduce them to paying with
affordable versions of the product, and monetize them with premium versions of the
product”
FREE
CHEAP
(Affordable)
PREMIUM
ILUSTRATIVE
Online business models
are usually Freemium.
It’s an issue to manage
in an industry used to
charge for everything.

50.
Agenda
 Soccer as a business
 Is the current model exhausted?
 Key Qs for Digital Transformation